What is the evidence that trickle down economics actually works?

[Ted King]

Kevin Drum had a blog posting on essentially the same question a couple of days ago (the day after I posted the OP):

http://motherjones.com/kevin-drum/2011/0...qus_thread

Top marginal rates went down under Reagan and growth was good. They went up under Clinton and growth was good. They went down again under Bush and growth was sluggish. That's not a slam dunk case, but it's at least actual evidence suggesting a pretty weak relationship between growth and taxes. Of course you can say that maybe growth would have been better in all three cases if tax rates had been even lower, but that's only because you can say anything. But where's the evidence?

Later there's this:

My basic view is that, for the reasons Alan Viard and others have carefully explained, high marginal tax rates have negative incentive effects that outweigh the potential revenue gains....

So I clicked the link. And Viard, again, doesn't present any evidence at all, careful or otherwise. Go ahead and see for yourself. There's a section titled "The Harm from High Marginal Tax Rates," but all it does is explain in general terms that taxes on income reduce the returns to work. This is so obviously true that I'm pretty sure no one has ever disputed it. The question is whether, in the real world, higher tax rates actually reduce the amount of work people are willing to do. As it happens, there's some evidence in both directions, and there's evidence suggesting different answers for different groups of people. Beyond that, we'd also like to know how big the effect is. How it compares to other ways of raising revenue. What the distributional impacts are. Etc.

[Grace62]

Ted I disagree with your take on Gwaltney's article, which is narrowly focused on one aspect of supply side economics: the top tax rate. His thesis was this:

"Supply-side economics provided the political and theoretical foundations for what became a remarkable change in the tax structure of the United States and other countries throughout the world. The view that changes in tax rates exert an impact on total output and that marginal rates in excess of 40 percent exert a destructive influence on the incentive of people to work and use resources wisely is now widely accepted by both economists and policymakers. This change in thinking is the major legacy of supply-side economics."

He used at least 9 pieces of empirical data to make his case. Did you miss them because they weren't in graph or chart form? (just kidding there buddy.)

I think the problem here is that you are looking for a different outcome from supply side economics than the supply-siders themselves are. You want to hear more about how this type of policy impacts average or poor Americans, and that is not the focus of the Gwaltney article.

[Ted King]

Grace62 wrote:
Ted I disagree with your take on Gwaltney's article, which is narrowly focused on one aspect of supply side economics: the top tax rate. His thesis was this:

"Supply-side economics provided the political and theoretical foundations for what became a remarkable change in the tax structure of the United States and other countries throughout the world. The view that changes in tax rates exert an impact on total output and that marginal rates in excess of 40 percent exert a destructive influence on the incentive of people to work and use resources wisely is now widely accepted by both economists and policymakers. This change in thinking is the major legacy of supply-side economics."

He used at least 9 pieces of empirical data to make his case. Did you miss them because they weren't in graph or chart form? (just kidding there buddy.)

I think the problem here is that you are looking for a different outcome from supply side economics than the supply-siders themselves are. You want to hear more about how this type of policy impacts average or poor Americans, and that is not the focus of the Gwaltney article.

I knew I should have reviewed the article rather than rely on my memory. That's what being lazy gets ya. I remember now that I was not impressed that most of the article focuses on marginal tax rates rather than effective rates - I don't know, maybe that impression morphed into "not empirical" in my feeble memory banks.

[RgrF]

Dakota and other doomsayers are actually pretty content with the current system.

Gives them something to bitch and campaign about. Thing is that's all BS since the world economy depends on agreements between economic powers. Problem for him is he's stuck in micro-economics while the folks he admires are not.

Our worldwide economic system -- the same system the godless Chinese and other erstwhile Communist systems have bought into -- is a lot like our recent near economic meltdown, it's to big to fail since we are all tied together and if the largest among us is allowed to fail; all will fail.

The economic macro-genius of this is that we, as a planet (at least the leaders), have a common goal.

The real problem is that the system we built that concept upon depends on having a continuing underclass and have no idea whatsoever what will happen when the population boom goes from wholly unmanageable (as it is today) to completely unsustainable.